Scandinavian Working Papers in Economics

Memorandum,
Oslo University, Department of Economics

No 20/2003: Genetic testing and repulsion from chance

Michael Hoel (), Tor Iversen (), Tore Nilssen () and Jon Vislie ()
Additional contact information
Michael Hoel: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Tor Iversen: Department of Health Management and Health Economics, University of Oslo, Rikshospitalet,, Postal: Rikshospitalet, 0027 Oslo
Tore Nilssen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Jon Vislie: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway

Abstract: A central theme in the international debate on genetic testing concerns the extent to which insurance companies should be allowed to use genetic information in their design of insurance contracts. We analyze this issue within a model with the following important feature: A person’s well-being depends on the perceived probability of becoming ill in the future in a way that varies among individuals. We show that both tested high-risks and untested individuals are equally well off whether or not test results can be used by insurers. Individuals who test for being low-risks, on the other hand, are made worse off by not being able to verify this to insurers. This implies that verifiability dominates nonverifiability in an ex-ante sense.

Keywords: Genetic testing; asymmetric information; insurance

JEL-codes: D82; I11; I18

20 pages, June 6, 2003

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Published as
Michael Hoel, Tor Iversen, Tore Nilssen and Jon Vislie, (2006), 'Genetic testing in competitive insurance markets with repulsion from chance: A welfare analysis', Journal of Health Economics, vol 25, pages 847-860

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